The Securities and Exchange Board of India (Sebi) is keen to
encourage hedge funds to invest directly in the Indian capital
market as foreign institutional investors (FII), rather using
the backdoor route of investing in securities of Indian
companies through participatory notes (PNs).
PNs are offshore derivative instruments through which hedge
funds can invest in Indian securities without directly entering
the market as an FII or its sub-account. (FIIs are permitted to
invest in the Indian capital markets subject to registration
with SEBI.) According to a SEBI report issued in May 2004,
hedge funds accounted for about 5% of the market value of the
total assets held by FIIs in India. Presumably, with increased
interest in India as an emerging market, this percentage has
increased and SEBI is keen to attract direct investments from
No statute defines the term hedge fund. What began as a
reference to funds...